Govt compensates companies for CO2 price to prevent carbon leakage

German companies subjected to the carbon price on transport and heating fuels will receive financial compensation if the CO2 price leads to disadvantages in cross-border trade and competition, the government cabinet decided in Berlin. The companies will be required to invest the majority of these funds in climate protection measures, the environment ministry explained in a press release. The German Bundestag (federal parliament) linked its required approval to conditions which were taken into account in today's renewed decision by the cabinet. The cabinet included the changes demanded by parliament and granted better support to companies with a low energy consumption as well as enabling a more immediate adjustment of the rules in case of “undesirable developments”, the press release stated.

Germany introduced a fixed CO2 price in the heating and transport sector in January 2021 of 25 euros per tonne of CO2, which will increase to 55 euros by 2025. As of 2026 emission allowances will start to be auctioned. However, there is an ongoing election campaign debate about increasing the price faster as new climate targets call for more ambitious policy. The government’s original proposal to prevent carbon leakage had been amended by parliament.